Dylan Grice on inflation targeting

Flawed thinking got us into this mess. But rather than change that flawed thinking, our policy makers are applying it with even more rigour: we have more debt for insolvent borrowers, more financial engineering, more complicated banking regulations, more blaming speculators for everything, more monetary experimentation by central banks. Our policy makers have absolutely no idea what they’re doing, but they’re giving it a go!

The latest from the Fed provides a wonderful example. Undeterred by the latest calamitous failure of CPI targeting regimes (a brief history of which will be presented below), it has announced an explicit 2% inflation target. But why? Would an explicit target have made any difference to the last crisis? Will it prevent the next one? And where did this 2% come from? We don’t know. But we suspect that past uninformed capital market tinkering has failed to control the uncontrollable, and we’re pretty sure these ones will too.

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Mr. Feynman said something else which I like. He said

“Ordinary fools are all right; you can talk to them, and try to help them out. But pompous fools – guys who are fools and are covering it all over and impressing people as to how wonderful they are with all this hocus pocus – that I cannot stand! An ordinary fool isn’t a faker; an honest fool is all right. But a dishonest fool is terrible!”

I think he’s right. Dishonest fools are terrible. It’s a shame they’re in charge.